BASKETS ON A BUDGET: THE INTRODUCTION OF THE PENSIONER AND BENEFICIARY LIVING COST INDEX.

Australians interested in domestic price fluctuations have traditionally turned to the Consumer Price Index (CPI) as a way of measuring a range of goods and services used by metropolitan households. Based on the price of an identical 'basket of goods and services' each quarter, it gives a good general indication of price inflationfor the household sector as a whole. While the CPI has many uses, it was not designed as a cost of living index and does not specifically reflect the out–of–pocket expenses of pensioners and other government beneficiaries.

The government's Pension Review Report concluded that an alternative measure of price change was needed that was more responsive to specific changes in pensioners' purchasing power. In response to the Review, the government funded the Australian Bureau of Statistics to produce a new index that more specifically reflects changes in the living costs of pensioners and other households receiving income support from the government: the main government income support being Age, Veterans Affairs, Sole Parents, Unemployment, Sickness, and Family payments. The government has indicated that it will use the index to adjust base pension rates where it is higher than the CPI.

The new Pensioner and Beneficiary Living CostIndex(cat. no. 6467.0)(PBLCI) has now been released, and has been calculated back to June 2007. The PBLCI measures the quarterly changes in the price of a 'basket' of goods and services for all the capital cities, including Darwin. The PBLCI does not currently include a capital city breakdown. Over time, the ABS will progressively improve the Index to better reflect the price changes experienced by pensioners and beneficiaries.

Since the June quarter 2007, the PBLCI has risen 7.1%, compared to 6.0% for the CPI. In the June quarter 2009 the PBLCI increased by 0.1%. The Consumer Price Index (CPI) rose by 0.5% over the same period. For the PBLCI, household contents and services (+2.2%) made the greatest contribution to the quarterly rise due to increases in furniture and furnishings. Transportation (+1.8%) also saw increases for the quarter as a result of rises in automotive fuel. The most significant offsets were provided by financial and insurance services (-6.3%) and food (-1.4%) due to falls in interest charges and fruit and vegetable prices respectively.

To represent households whose principle income is government pensions and benefits, the PBLCI will source the price measurements from the CPI, with some exceptions such as interest and insurance charges, and use a different weighting pattern to construct the Index. The expenditure patterns of pensioners and beneficiaries can be quite different to the CPI (which is designed to represent the household sector as a whole). For example, “food” has a higher relative weight in the PBLCI than in the CPI; however education carries a very small weight in the PBLCI. Some items from the CPI are completely excluded from the PBLCI. For example, only concession prices are selected for some health items, transport fares and telephony charges, whereas the CPI includes both concession and full price charges. It should be noted that neither the CPI or the PBLCI are indicative of a true cost of living index since, for practical reasons, they are based on a fixed basket and don't reflect the way consumers alter their purchasing habits to account for price fluctuations.

Like the CPI, the PBLCI measures changes to retail prices in capital cities. It is not designed to measure price levels; rather its purpose is to measure changes in prices over time. Although price levels in country regions often differ from those in metropolitan areas (some higher and others lower), the factors influencing price movements generally tend to be similar. Therefore the PBLCI can be expected to provide a reasonable indication of the changes in prices for the reference population in Australia as a whole in the longer term.

The Household Expenditure Survey (HES) is one of the most important social surveys conducted by the Australian Bureau of Statistics (ABS). The data collected from the HES establishes the spending habits of Australian households, which is used as a starting point for selecting the 'basket of goods and services' for the CPI and the PBLCI.

The ABS is currently conducting the 2009-10 HES around Australia. The HES is designed to identify the levels and patterns of expenditure of private households on a comprehensive range of goods and services purchased for private use. The HES also determines how these levels and patterns vary according to income levels and other characteristics of households, such as size and composition, location and principal source of cash income.

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